Environmental, Social, and Governance
ESG stands for Environmental, Social, and Governance. It’s a framework used to assess the sustainability and ethical impact of an investment in a business or company. ESG criteria are used by investors to screen potential investments based on a company’s adherence to specific performance indicators within these three areas
Environmental
The environmental aspect of ESG evaluates a company's impact on the natural world. This includes managing carbon emissions, energy efficiency, pollution, waste, and resource conservation. Strong environmental performance can lead to cost savings, regulatory compliance, and a better reputation, making companies more attractive to investors focused on sustainability.
Social
The social aspect of ESG assesses how a company manages relationships with its employees, customers, suppliers, and communities. Key factors include labor practices, diversity and inclusion, human rights, customer satisfaction, and community engagement. Companies excelling in social responsibility often enjoy better employee morale, stronger brand loyalty, and enhanced reputation, making them more appealing to investors who prioritize ethical and sustainable business practices.
Governance
The governance aspect of ESG examines a company's leadership, ethics, and internal controls. Key factors include board composition, executive compensation, audit practices, transparency, and shareholder rights. Strong governance ensures accountability, mitigates risks of corruption, and promotes long-term sustainability. Companies with robust governance frameworks are generally more trustworthy and attract investors seeking stable and responsible management.
